It will be a case of different cast list, different venue, but same old problems when the leaders of the G20 jet in to the South of France on Thursday for their summit in Cannes.
Hosted by Nicolas Sarkozy, the two days of talks will begin where last week’s eurozone gathering in Brussels ended: with the deepening sovereign debt crisis in the monetary union.
The good news from last week’s meeting was that the 17 countries in the single currency bought themselves a respite with their latest bailout package. The bad news was that the respite lasted only two days, and markets have been tumbling this week after the Greek prime minister, George Papandreou, announced that he would put the bailout terms to a referendum.
Both the United States and China have expressed concern and irritation in recent weeks over the failure of the Europeans to “get their act together” and tackling the debt crisis will be top of the agenda in Cannes. Sarkozy will be hoping that China and Saudi Arabia will show solidarity by putting money into the European Financial Stability Facility — the fund of at least €1tn (£875bn) that is being put together to prevent the contagion spreading from Greece to the rest of the eurozone. Beijing was already taking a hard-nosed approach to support for the eurozone: the Greek referendum bombshell will make China even more cautious.
Sorting out the eurozone is part of a bigger problem: how to get the global economy back on track after a deep and protracted crisis. The structural problems that caused the financial crisis — the imbalances caused by some countries running massive trade surpluses and some running huge trade deficits — have not been resolved. The key question is whether the big surplus nations — China, Germany, Japan and, to a lesser extent the big oil exporters of Russia and Saudi Arabia — agree to expand their domestic economies to help the deficit countries export more. Thus far, they have been resistant to the pressure and there is nothing the debtor countries can do to force their hand.
The message from the big international organisations in the runup to Cannes will be downbeat. Both the International Monetary Fund and the OECD have both sharply downgraded their growth forecasts for 2012, while the International Labour Organisation has warned that rising unemployment could prompt widespread social unrest. Australia has been calling for an increase in the resources available to the IMF in the event that it needs to step up its fire-fighting activities over the next year. Some action here looks highly probable.
Unions represented in Cannes are eager for action to stem the rising tide of unemployment, while business leaders are urging the completion of the Doha Round of trade talks. There will be few initiatives to stimulate employment growth, but central banks will be urged to keep interest rates low and to support activity through “unconventional measures” such as quantitative easing. On fiscal policy, where the Obama regime believes deficit reduction should be delayed until recovery is entrenched but the UK does not, countries will be invited to go their own way.
Finally, there is development, once the centre-piece of summit meetings but now far lower down the agenda as a result of the crisis in the western economies. Here the focus will be on the report by Bill Gates, which was commissioned by Sarkozy, and will identify “innovative” ways of raising finance for poor countries. Gates has been looking at a range of options including taxes on tobacco and a financial transaction tax (FTT). The French and the Germans strongly support an FTT; the UK and the US equally strongly oppose it. On this, as on much else, there is unlikely to be a show of unity.